What are the different ways to Manage Payroll?

Charlene M. Ives, CPA, PC

Charlene M. Ives, CPA, PC

Whether you are thinking of hiring or you have already hired employees, you may be asking now what? As an employer, you have several responsibilities:
  • Maintain forms W-4, I-9, etc.
  • Withhold the proper amounts from employee's paychecks
  • Remit payroll taxes
  • Quarterly, annual & other reporting compliance
  • Find a Workers Compensation plan
  • Comply with mandates regarding tax liens, child support etc.

There are several ways to get all this done! This will be a brief summary of possible options:

1. Hire a payroll processing service

Payroll processing services will do everything from maintaining forms to reporting, usually on a per-paycheck basis. All you have to do is let them know about new hires, wages currently payable, and any changes, and they'll do everything, including deposit the payroll taxes.

  • Upside: Simplicity
  • Downside: Payroll processors typically do well when payroll is routine and simple; some problems arise in more complex or atypical situations. With a great amount of employees, the cost can build.
2. Do it yourself

You may choose to maintain payroll by yourself, or hire an employee to do it. You will need to choose an information system (software with payroll functions, or a manual bookkeeping system).

  • Upside: If using a manual system, you need a good understanding of accounting for payroll. Managing your own payroll is potentially the cheapest option.
  • Downside: Without a good understanding of accounting for payroll, you can get yourself into a mess that you might not understand how to get out of! Be very careful about placing an employee in the position of maintaining payroll records, AND writing their own paychecks. If one person is doing all this, be sure to have internal controls on cash and record keeping.
3. Have your CPA do it

Many CPAs will do this service at a very reasonable cost.

  • Upside: A good CPA will be not only take responsibility for compliance (so you don?t have to worry about it), but will be able to keep an eye on withholding for you as a business, owner, so that you will pay an appropriate amount of income taxes.
  • Downside: CPA firms may have to charge for extra time spent on payroll, resulting in higher fees. This can happen as a result of inefficiencies and delays.
4. Hire an employee leasing service

Employee leasing services are similar to payroll processing companies, except that they go a little further: your employees become part of the leasing company's payroll, therefore they become eligible to participate in a group health plan, as well as a pension plan (typically a 401(K) plan).

  • Upside: As with a processor, you get to unload it all the leasing company! If you have an employee or a dependant of an employee who is ?uninsurable?, this person may be able to get into the group plan of a leasing company. If making a 401(K) plan is important to you, but you've priced it and the cost of an your own 401(K) plan is too high, this is a great way to get into one without paying all the administration costs directly.
  • Downside: Cost. Leasing companies typically charge 2% of gross payroll as an administration fee. Also, a strong caveat is appropriate: Leasing companies have at times engaged in the practice of overcharging certain payroll taxes as a way to hide administration fees. There is no substitute to vigilance when you turn over complete control to either a payroll processor or a leasing company. Examine your contract CAREFULLY.

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